For anyone who believes it’s homebuyers, not sellers, that bring money to the table at the end of a deal, at least one buyer backed by two law firms agrees with you.
On Jan. 25, Englewood, New Jersey resident Judah Leeder, who purchased a home on Oct. 28, 2020, filed an antitrust lawsuit against the National Association of Realtors and real estate franchisors Realogy, Keller Williams, RE/MAX, HomeServices of America and HomesServices subsidiaries BHH Affiliates, HSF Affiliates and the Long & Foster Companies.
The suit, like its predecessors — dubbed Moehrl, Sitzer and Bauman after their lead plaintiffs — alleges that the sharing of commissions between listing and buyer brokers is a conspiracy in restraint of trade in violation of the Sherman Antitrust Act — but for inflating buyer costs, not seller costs, in the form of higher home prices.
The plaintiffs in all four suits want to have homebuyers pay their broker directly, rather than have listing brokers pay buyer brokers from what the seller pays the listing broker — a move that could upend the U.S. real estate industry by effectively forcing changes in how buyer’s agents are traditionally compensated.
However, while Moehrl and Sitzer seek class-action status on behalf of homesellers who paid a broker commission since 2015 in connection with the sale and listing of their home in one of two dozen Realtor association-owned multiple listing services, the Leeder suit seeks class-action status for a much broader class: everyone who has purchased residential real estate that was listed on a Realtor-affiliated MLS from Dec. 1, 1996 to the present.
The suit alleges that the class members were overcharged by “at least thousands of dollars” in an amount exceeding $5 million “as a result of Defendants’ conspiracy.”
“For decades, homebuyers across America have been unwittingly paying too much for, and receiving too little from, services offered to homebuyers by real estate agent members of NAR,” the complaint says.
“Despite agent representations (which NAR permits and encourages) that such services do not cost homebuyers anything, homebuyers in fact pay a hefty cost for these services — namely, supracompetitive commissions at levels fixed by the Defendants, which in turn lead to higher home prices paid by buyers.”
In an emailed statement, Mantill Williams, NAR’s vice president of communications, said, “NAR strongly disagrees with the misrepresentation of our rules and mischaracterization of the MLS. We will vigorously contest this lawsuit, and we expect to prevail.”
“The MLS system creates competitive, efficient markets that benefit home buyers and sellers by incentivizing brokers to work together to buy and sell homes on behalf of their clients as efficiently and transparently as possible,” Williams added. “This is a system that has benefited millions for more than 100 years and leveled the playing field for first-time and low-income homebuyers.”
According to the complaint, Leeder was not aware of NAR’s allegedly anticompetitive rules until November, when the U.S. Department of Justice (DOJ) filed an antitrust suit against NAR alleging some of its rules are illegal restraints on Realtor competition, including some rules regarding commissions. The DOJ and NAR agreed on a settlement modifying those rules prior to the filing of the suit and the modifications are expected to go into effect this quarter, including a change that would require that MLSs make commissions to buyer’s agents publicly available.
Leeder’s suit takes NAR to task for the same rules as the three previous suits: the requirement that a listing broker make a “blanket unilateral” offer of compensation to any buyer agent who brings a buyer for a home, regardless of that agent’s skills, services or experience (dubbed the Buyer Agent Commission Rule in this suit) and “severely restricting brokers’ ability to modify the buyer agent commission after the buyer agent conveys a purchase offer.”
The suit alleges local Realtor associations, Realtor-affiliated MLSs, and franchisees and brokers of the corporate defendants are co-conspirators for implementing the Buyer Agent Commission Rule.
“These blanket offers relieve buyer agents of the need to compete on things like price and quality of services,” the complaint says.
“For example, novice brokers who have just received their licenses can charge the same prices as highly skilled, long-practicing brokers,” the complaint adds.
The complaint highlights that total commission levels haven’t changed in the past two decades, remaining, on average, between 5 percent and 5.4 percent between 2000 and 2017, “despite the advent of the internet and the diminishing role of buyer agents.”
“Moreover, because housing prices have increased substantially in recent years (at a rate significantly exceeding inflation), and commissions are charged on a percentage of a home’s sale price, the actual dollar commissions have become even higher,” the complaint adds.
The Leeder suit also condemns the NAR rules at issue in the DOJ lawsuit that will be changed as part of the settlement, including prohibiting the disclosure of buyer’s agent commissions, allowing buyer’s agents to represent their services as “free” and thereby discouraging price negotiation, allowing buyer’s agents to filter MLS listings based on commissions and exclude lower-commission properties from search results provided to homebuyers and limiting lockbox access to members of NAR.
These rules result in maintaining buyer agent commissions at inflated levels, steer home buyers away from lower-commission homes, and drive out discount brokerages, according to the complaint.
“Steering of home buyers to high commission homes reinforces high commission rates,” the complaint says. “It also reduces the quality of buyer agent services by incentivizing buyer agents to limit the homes they show prospective buyers to those that offer high commissions. Homebuyers are therefore both more likely to pay a higher price for their home (since the buyer agent commission is baked in to the sale price), and less likely to be matched with the optimal home — the exact task the buyer agent is paid to do.”
NAR’s rules also put pressure on sellers to offer a high, standard commission and deters them from attempting to offer a discounted commission, which further contributes to higher prices for buyer agent services, according to the complaint.
“The reason for the Buyer Agent Commission Rule is clear: to maintain high broker commissions for NAR members at the expense of homebuyers,” the complaint says. “In the absence of the Rule, buyers rather than sellers would negotiate buyer agent commissions, and brokers would compete with each other by offering lower commission rates and/or higher quality services.”
Moreover, the complaint says, buyer agent commissions are unrelated to the costs buyer’s agents incur or the quantity, quality or value of services they provide.
The suit claims not only violation of the Sherman Act, but unjust enrichment, alleging that the corporate defendants “have increased their profits substantially by receiving inflated buyer agent commissions and inflated total commissions” while NAR has benefited financially from the alleged conspiracy through its member dues.
“It would be inequitable under unjust enrichment principles for Defendants to be permitted to retain any of the profit or other benefits they derived from the unfair and unconscionable methods, acts, and trade practices alleged in this Complaint,” attorneys for the plaintiff wrote.
“Defendants should be compelled to disgorge in a common fund for the benefit of Plaintiff and Class members all unlawful or inequitable proceeds they received, and such other relief as the Court may deem just and proper.”
The complaint seeks damages and/or restitution and a permanent injunction barring NAR from implementing the same or similar rules being challenged in the suit.
RE/MAX, Keller Williams, and HomeServices of America and its companies declined to comment for this story. Realogy did not respond to an emailed request for comment.
Read the complaint: